Lowdown of Taxes on Foreigners

FINANCE & Economics are my most hated subjects. So to try to wrap my head around the whole taxes issue imposed by the government on foreigners was no easy feat for me. This is especially so when Singapore is the smallest country in the world that there is no differentiation of States and Cities because there isn't any, hence jurisdiction remains the same nation-wide.

Thus, I'll only be writing what applies to me as an Independent aka Entrusted Contractor [委託(itaku) Contract].

However, if you're keen in knowing more about taxes that are relevant to you (sole proprietor, automobile etc), you may find some links in Helpful Tips that I feel are comprehensive yet easy to understand about this system in Japan.

*Update: Please bear in mind that different Municipals apply different % of tax to your salary in addition to different times of collecting your taxes. Some will collect it quarterly, some annually, some bi-annually. If you won't have regular pay like I do in Japan, it is suggested that you request to pay annually instead of bi-annually or quarterly.
The general rule of thumb of this system is applied in most parts of Japan. I'll continue researching and refining the Helpful Tips section to include direct links of Tax issues in various Municipals/Cities in Kansai, as most do not have a stand-alone website on such information.

Step 1

As a Non-Resident working and living in Japan, you have to be aware that there are 3 kinds of taxes to pay.

National Income Tax (% - according to your annual income) - 所得税 (しょとくぜい / Shōtoku-zei)

Prefectural Income Tax (4%) - 県民税　(けんみんぜい / Kenmin-zei)

Municipal Income Tax (6%) - 市民税 (しみんぜい / Shimin-zei)

Most Japanese are not aware of:

Prefectural Income Tax (4%) - 県民税　(けんみんぜい / Kenmin-zei)

Municipal Income Tax (6%) - 市民税 (しみんぜい / Shimin-zei)

Because together, these 2 types of taxes are known as:

Resident Tax aka Inhabitant Tax - 住民税(じゅうみんぜい / Jyumin-zei) aka 地方税 (ちほうぜい / Chihou-zei).

Henceforth, I shall refer to it as Resident / Inhabitant Tax in this post.

Step 2

Understand the term of Residence when living in Japan.

Permanent resident:

An individual who is someone who has lived in Japan continuously for more than one year whether or not he/she has an address in Japan. This does not include non-permanent residents.

Non-permanent resident:

An individual who has no intention of residing permanently in Japan and who has not had a residence in Japan for more than five years.

Step 3

Understand the differences between Prefecture and Municipal.

Prefectural derived from the word Prefecture.

A large part of a country (like a State) with its own jurisdiction.

Municipal - a city within the Prefecture also with its own government / administration.

How do I know which is a Prefecture and which is a Municipal?

Eg: Hyōgo-ken (兵庫県): ken (県) refers to Prefecture.

According to Wikipedia there are 43 other Prefectures in Japan characterised by the word ken(県).

Only 2 other Prefectures, Ōsaka-fu (大阪府) and Kyōto-fu (京都府) where fu(府) also refers to Prefecture.

Bottomline - ken(県) and fu(府) refers to Prefecture.

Let's use the following address as an example:

Hyōgo-ken; Amagasaki-shi, Minami-Mukonoso.

Within Hyōgo-ken (兵庫県 / Hyogo Prefecture), there are many Cities.

A City is characterised by the word 市(shi).

One of the cities in Hyōgo Prefecture is a City (市/shi) called Amagasaki-shi (尼崎市 / Amagasaki City).

Within the City (市/shi), i.e. Amagasaki-shi (尼崎市), there is a Town/District/Village (町/machi) called Minami-Mukonoso.

*Note: In Hyōgo Prefecture, only Kobe City (Kobe-shi) has Wards (区/ku) within the City.

*Update Jan 27, 2012: 

Some places are characterised as 郡（ぐん / gu-n）. It is referred to as "District". Within a 郡 there are 
towns (町 / まち / machi) and villages ( 村 / むら / mu-ra).

Therefore,

Prefectural Income Tax means tax on staying in Hyōgo-ken (兵庫県).

Municipal Income Tax means tax on staying in Amagasaki-shi(尼崎市).

If I want to move and reside in the following address:

Ōsaka-fu; Ōsaka-shi; Kita-ku; Chayamachi,

I'll need to inform the relevant authorities of the change in address.

Ōsaka-fu (大阪府) and Kyōto-fu (京都府) works pretty much the same in the breakdown of 

Prefecture -> City -> Ward-> Town / District / Village:

One of many cities within Ōsaka-fu (大阪府 / Osaka Prefecture) is Ōsaka-shi (大阪市 / Osaka City).

There are many Wards within Ōsaka-shi (大阪市 / Osaka City). 

Wards are characterised by the word ku (区). In this case, it is Kita-ku(北区).

Within Kita-ku (北区) there is a Town/District/Village (町/machi) called Chaya-machi / Chayamachi 

(茶屋町).

Therefore, in Ōsaka,

Prefectural Income Tax means tax on staying in Ōsaka-fu (大阪府).

Municipal Income Tax means tax on staying in Ōsaka-shi(大阪市).

The purpose of the Resident Tax aka Inhabitant Tax (i.e. Prefectural + Municipal Income Tax = 10%) is your contribution to staying in the community. Besides contributing to Police Patrol services, Ambulance services etc, you'll also receive notices of community events that you may partake.

FAQs

When do I pay these taxes?

The fiscal year is from April - March. That made sense on why the organisation subcontracted me to begin work only in April.

National Income Tax (in my case its 10%)

This is taxable on the year after you've begun work in Japan. This is paid twice a year, every November and March, with the full payment by March the following year.

For example:

I'll begin work in April 2012.

1st installment - November 2012

2nd installment - March 2013.

If I don't pay in November, I need to pay the full amount by March 2013.

However, if your employer withhold the tax for you, it'll be deducted every month from your salary and they'll file the tax return for you either in November / March the following year.

If your employer doesn't do that (perhaps your employer is outside Japan), and due to following reasons such as:

- You quit your job during the fiscal year

- You leave Japan during the fiscal year

- You want to take deductions for various losses and medical expenses

- You have employment income from several companies

then you're known as a Self-Assessed tax payer (確定申告 / Kakutei shinkoku).

Resident Tax aka Inhabitant Tax (i.e. Prefectural 4% + Municipal 6% = 10%)

This is paid in 4 installments. You'll receive notification on payment deadlines. 

The 4 installments only begin the following year in June, August, October and January. This method of payment is called the Ordinary Collection.

For example:

My contract states employment from April 2012 - March 2013.

1st installment - June 2013

2nd installment - August 2013

3rd installment - October 2013

4th installment - January 2014

I've researched from many websites and I feel the following 3 provided the best information (can be found in Helpful Tips): Japan Guide, Hida Takayama International Association (HTIA) and Osaka City Finance Bureau.

Japan Guide & Osaka City Finance Bureau are more current. The latter is extremely detailed though.

Osaka City Finance Bureau states, "An individual who has a residence within a ward (区/ku) as of January 1 shall, in principle, submit a tax return form in which income amount, etc. are to be specified to the Municipal Tax Office in charge of the ward of your current residence as of January 1, by March 15 of the same year."

This can swing either way for a foreigner.

For example:

I arrived Japan on March 20, 2012.

I applied for an Alien Registration Card (identity card) and National Health Insurance etc at the City Hall 

(市役所 / しやくしょ / Shiyakusho) the next day.

I started work on April 1, 2012.

It is possible for the Tax Department to enforce a method called Special Collection to start taxing me on the Resident / Inhabitant tax (10%) every month or every quarter beginning from June 2012. This is to prevent a foreigner from trying to avoid paying these taxes when their contract expires and leaves the country.

1st installment - June 2012

2nd installment - August 2012

3rd installment - October 2012

4th installment - January 2013

How do I pay the Resident / Inhabitant Tax if I leave Japan in end of March / April 2013?

You must pay the entire 10% from your annual income earned in 2012 before leaving Japan in March/April 2013 at the Municipal Office.  I believe. This is also because you have to inform them of your departure from Japan. I strongly advise this especially if you intend to return to Japan for future business/work opportunities or even for a vacation in the future.

If I move from Amagasaki-shi (Amagasaki City) in Hyogo Prefecture to Moriguchi-shi (Moriguchi City) in Osaka Prefecture on January 15, 2013, which Municipality will levy the tax?

You'll still receive notification of taxes from Osaka-shi (Osaka City) because as of January 1, 2013, your place of residence was still in Osaka-shi. Hence, you must still pay Resident / Inhabitant Tax for 2013 to Osaka-shi.

Do I still need to pay the Resident / Inhabitant Tax if I don't have a job?

Yes.

Where do I pay the National Income Tax & Resident / Inhabitant Tax?

Osaka City Finance Bureau shows you all modes of payment.

Generally, most people pay either through ATMs or at the respective offices in the respective Municipals.

National Income Tax - 所得税 (Shōtoku-zei) pay at National Tax Office in the City you're residing.

Resident / Inhabitant Tax - 住民税(じゅうみんぜい / Jyumin-zei) aka 地方税 (ちほうぜい / Chihou-zei) pay at City Hall (市役所/Shiyakusho) in the City you're residing.

Other Taxes

The other general tax that everyone pays when purchasing goods and services, is known as  

Consumption Tax (5%). 4% of it goes to the National Tax Office, 1% of it to the Prefecture Tax Office.

FINALLY! I'm done with this post after consolidating, re-checking, more importantly, to Simplify the information, and challenging my dad on some of the info since 12:30pm and it's 4am now (~16hours). Took me over 2 weeks of research and plenty of correspondences and clarification with しみず先生 and my dad to help me sort this out. Thank you very much!

But I realised, after all these, I hope the info I've provided will benefit someone residing in Osaka-shi. Although my place of work may be in Osaka Prefecture, my intended place of residence will be in Hyogo Prefecture. I've tried several searches online on the exact name and location of the National Tax Office and City Hall in Amagasaki-shi, but I've been unsuccessful thus far.

Anyone with experience to share on this issue, feel free to comment! Any help / information is greatly appreciated. Thanks!

*Diagrams from The Meiji and Taisho Eras in Photographs and Osaka City Finance Bureau.

Update: Thursday, February 23, 2012

Each individual may not file the same items on their tax forms so it's recommended if you contact the following tax agent / agency to assist you.

TaxBack.com

National Tax Agency Japan